How is the price determined for a decentralized currency like bitcoin?
So far, I have got mixed responses from elsewhere including theoretical explanations of supply/ demand, trading bots and on similar lines. But, no answer in simple enough language and with authority that explains the price (thus the volatility) of the cryptocurrencies.
Is this somewhere in the code that takes some input parameters to deterministically reach a price, maybe based on the hashing power, difficulty level etc? Or is it more complex? Can someone please explain the inner workings? My curiosity is only to understand the correlation between cryptocurrencies and the Economics in the absence of a centralized governing/ intervening body.
Furthermore, how do different exchanges reach on the consensus for a price? Is it their own algos determining the price on the fly or is it more like a moderator picking on price with a predetermined fluctuation? Or is it more like how remitters reach to a daily price which is close enough to each other (to allure genuine customers, but not as much for an arbitrage)?
There is something going on right now that is related to this topic and cryptocurrency. Ethereum mining. Because the price of ethereum is so high at the moment, people are interested in mining it. Unlike Bitcoin, ethereum doesn't need much hashing power to make a good profit, which means that individuals can do it without investing an insane amount of money. The way they mine is through gpu's, specifically the newer generation amd cards. They are extremely powerful and power efficient. However, the supply of these cards are quite low but the demand is extremely high. Because of this, stores that supply these cards are pushing up their prices by 20 or 30 percent because they know people want the product. It is simple supply and demand. That is pretty much the same with Bitcoin. There is a limited supply of Bitcoin but the demand is rapidly rising, people want to make sure that they get Bitcoin so they are willing to pay a premium price for it,. This train keeps going on and the price of Bitcoin ends up going up.